Since mainstream econ has decided to abandon the quantity theory of money, I would like to attempt to resurrect the theory. Here is the basic reasoning behind the theory:

"A rise in the money stock must, for logical reasons, reduce the exchange value of a money unit. This is because the additional money unit can be used to satisfy an additional end that is necessarily less urgent than the satisfaction of the preceding end. A rise in the money stock will thus necessarily lead to a decrease in the marginal utility of the money unit (compared to the situation in which the money stock had remained unchanged)."

In other words, the quantity theory of money is nothing but the application of marginal utility theory to money. There is no principal in economics more secure than the principle of decreasing marginal utility and money follows that principle without fail.

"As a result, a rise in the money stock can never be "neutral" in economic terms. It necessarily leads to a decline in its exchange value — when compared with a situation in which the money stock had remained unchanged; and it should also be noted here that a rise in the money stock affects different market agents differently (the "Cantillon Effect").

"A monetary policy of increasing the money supply is therefore never "neutral": It necessarily lowers the exchange value of the money unit, and it necessarily benefits some people (namely the first receivers of the new money) at the expense of others (namely the late receivers of the new money)."

I think one would have to be dumb and blind to think that the Fed has done a good job of managing money over the past century. For most of that periods its hubris has made depressions worse and booms worse.

Still, a gold standard will not help. It cannot prevent credit creation, which is the main problem. Massive credit creation is the nature of fractional reserve banking, which is never going away.

What we need is a break on credit expansion during booms. The Fed has proven itself totally incompetent at that. Only better monetary theory will help the Fed overcome its addiction to inflation via credit expansion. Barring that, we should give up on central planning of the money supply by the incompetent FOMC and try free market banking for a change.